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Peggy Rooney Asked:

My son's wife moved out of their house a few months ago. She took care of all bill payments. Now he finds out that she did not make the second mortgage payment for a very long time and they will no longer accept a monthly payment. He is working two jobs just to pay the monthly bills and has two children with him. He tried to draw out his 401K to pay on the second mortgage but was not able to get more than $1200 from the fund. His first mortgage is fine. What can he do about this situation? Can the second mortage company foreclose on his house? Thank you for your reply. [Annapolis MD]



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Answer Provided by: George Collis [01/02/2009]

Yes, the 2nd mortgage lender can foreclose. However, the property would have to sell for a sufficiently high enough amount to cover sale costs plus pay off the 1st mortgage before there would be any money for the 2nd lender. An equally important issue is what his estranged wife's intentions are. If she is in title to the property her cooperation will be important for some of your son's options. If formal separation steps haven't been taken they should be undertaken. There may be an issue of abandonment here in those proceedings. With documentation of the circumstances, and persistence on his part he may be able to make some progress. Has he spoken to the lender's loss mitigation department? They are often difficult to deal with (ironic, given their title) but they are the ones who could make some arrangements. I live and practice in the Annapolis area. Depending on where your son lives, he may be experiencing a decline in property values. This, coupled with the reduction in household income, could mean that he would qualify for loan modification. Depending on the amount of his 2nd mortgage delinquency, and the balance on his 1st mortgage, an FHA refinance might not even be out of the question. My advice to him is twofold: (1) Don't give up; you may still have options, and (2) explore professional assistance regarding both the marital situation and negotiating a solution to your housing challenge. Best wishes in you efforts. George Collis, CFP, CDFA